Question

Marigold Corporation leased equipment to Splish Brothers, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,691 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $7,800, a book value of $5,800, and Marigold expects a residual value of $5,300 at the end of the lease term. Marigold set the lease payments with the intent of earning a 8% return, though Splish Brothers is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e.g. 5,275.) Rental payments $

Prepare the entries for Marigold for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/2012/31/20 1/1/2012/31/20 (To record the recognition of the revenue) 1/1/2012/31/20 (To record depreciation expense on the leased equipment)

How would Marigold’s accounting in part a change if it incurred legal fees of $600 to execute the lease documents and $600 in advertising expenses for the year in connection with the lease? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20Over the course of the year12/31/20 1/1/20Over the course of the year12/31/20 1/1/20Over the course of the year12/31/20 Click if you would like to Show Work for this question: Open Show Work

Answer 1